Preparing for change: grantmakers looking for effectiveness. (New Ideas).

Faced with big changes in the forces shaping the way they do business, grantmakers and nonprofits are confronting the future. "There is a critical mass of people in and around philanthropy now that are taking up this challenge," said Barbara Kibbe, director of organizational effectiveness and philanthropy at the David and Lucile Packard Foundation in Los Altos, Calif.

To survive and thrive, philanthropy experts agree, charities must be equipped to be more effective, track the impact of that retooling and share what they learn about what works and what doesn't.

Charities also must overcome growing mistrust and learn to work together, they say.

Those were among issues examined by more than 550 people at a Washington, D.C., conference in March sponsored by Grantmakers for Effective Organizations (GEO) that opened with a plea to think hard about what's ahead.

Future thinking

Just as the industrial economy gave birth in the late 1800s and early 1900s to the first private foundation in the United States, community foundations and the United Way, the global knowledge economy of the early 2000s is transforming philanthropy and the nonprofit world, said Katherine Fulton, a partner in the Global Business Network (GBN), a think tank and consulting firm in Emeryville, Calif.

In a project funded by Packard and the WK. Kellogg Foundation in Battle Creek, Mich., GBN has worked for a year to adapt for foundations and nonprofits its "scenario-planning" tools that corporate clients use to assess possible future challenges and develop strategies to meet them.

The key, said Fulton, is thinking about forces at work in philanthropy beyond one's own organization.

Philanthropy, she said, is being transformed by technology and the Internet, a new breed of donors, the expected transfer of trillions of dollars between generations, growing need for social services, declining government funding and rapid development of support systems for nonprofits and funders.

To boost philanthropy, she said, a new "ecology" consisting of "networks of networks" is evolving, she said. "The global network knowledge society is the context today for the birth of knowledge-age philanthropy."

And while more philanthropic dollars are flowing -- GBN predicts, for example, that foundations will give away as much money in the next 10 years as they gave away in the last quarter-century --the system of "public problem-solving is much more complex," requiring strategies rooted in collaboration and the sharing of knowledge, she said.

GBN also is working with foundations and nonprofits to develop a "theory of change for philanthropy itself" to speed the development of support networks in a sector slow to change because charitable organizations traditionally have not been driven market forces, Fulton said.

The challenge, she said, is figuring out how to spur individuals and organizations to team up to help philanthropy adapt itself to the future more quickly.

Measuring impact

A huge challenge -- and GEO's focus -- is the job of gearing foundations and nonprofits to be more effective by boosting the "capacity," or internal workings, of individual organizations and the sector as a whole, grantmakers and philanthropy experts said.

"We either improve the sector in terms of its performance and capacity, or we face a very dire future," said Paul Light, director of the governmental studies program at the Brookings Institution in Washington, D.C., and author of Pathways to Nonprofit Excellence, a new study on the performance and effectiveness of nonprofits.

The nonprofit sector is "under siege" and faces increasing pressure to account for itself Light said, "much of it driven by the sense that the sector is somehow not capable of being a wise steward of the resources it gets."

The sector's response to the September 11 attacks represented an unprecedented opportunity to tell its story, he said, but was overshadowed by troubling questions about how the American Red Cross (ARC) and other agencies handled the outpouring of donations the tragedy generated.

"The nonprofit sector may have squandered one of the greatest opportunities to surge in trust in the last 25 years," he said. Light's new study, based on surveys of 250 experts in nonprofit effectiveness and another 250 leaders of well-run nonprofits, found "no lack" of ideas for strengthening nonprofits.

"The problem is that no one knows which reforms worked, when, and why," the study said. "The sector has been so busy adopting the reform of the day that it has underinvested in basic research to measure the impact of the reforms themselves."

Most of those surveyed believe nonprofits are better managed today than five years ago, the study found. But nonprofits are not investing enough in "human capital," Light said. "It's a workforce worth treasuring, but we're not treasuring it, we're not investing in it."

High-performance in the nonprofit sector, he said, is possible, can result from a variety of strategies and "does not involve perfection."

In working to boost nonprofit performance, he said, grantmakers should "prepare to persevere" and should understand that "sustaining excellence is just as important as achieving it."

Teaming up

Other experts called for greater collaboration among funders and nonprofits, greater sharing of information about efforts to improve the effectiveness of grantmakers and nonprofits, and better education of donors and funders.

Philanthropy's future is "very dark," said Mario Morino, chairman of Venture Philanthropy Partners, a $35 million-asset venture philanthropy group in Reston, Va.

Donors, angry about the way the ARC and other charities handled contributions to assist victims of the September 11 attacks, remain skeptical about giving, he said.

He also chided venture philanthropists for having "acted prematurely" and been "too strident" in acting as if they knew more than traditional foundations and donors about how to practice philanthropy.

"New and old are much closer than we ever imagined," he said.

Bridging the gap between traditional foundations and newer venture philanthropies, and between grantmakers and nonprofits, will be critical if the nonprofit sector is to thrive, other experts said.

"The barriers, the silos, that foundations and nonprofits live in limit the potential of capacity-building," said Sandra Mikush, assistant director of the Mary Reynolds Babcock Foundation, a grantmaker in Winston-Salem, N.C., that focuses much of its funding on building the internal operations of nonprofits.

Todd Cohen is editor and publisher of Philanthropy Journal, an online newspaper at www.Philanthropyjournal.com. He can be reached at tcohen@aff org